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Star Wars merchandising - an astonishing $20 billion story

There are bad business decisions, and then there are terrible ones. Decisions so terrible, so ill-conceived, so lacking in judgement, that they're almost incomprehensible. One such decision was made by 20th Century Fox in 1977, when it more or less sold the merchandising rights to the Star Wars franchise for a paltry US$20,000.

It can be argued, of course, that the company had no way of knowing exactly how big the Star Wars franchise would become, but even so, it's an egregious error: 20th Century Fox did not only sign away the rights to the first Star Wars film, but also to any films that might be made in the future.

The young George Lucas wanted to drive racing cars, but lost interest after being involved in an accident. Instead, he became interested in film-making, and after completing a fine arts degree, enrolled for a graduate degree in film production. Lucas made numerous short films, and later adapted one into his first feature film, THX 1138. That first venture was a critical and box-office failure, but while filming it, Lucas began to write American Graffiti , a coming-of-age story that struck a chord with American film-goers, and generated $55 million on its initial release.

Lucas was offered a modest fee to write and direct Star Wars , but in light of his earlier success with American Graffiti, 20th Century Fox had opened the door to negotiations for a higher sum. Deciding against this move, Lucas instead negotiated for some alternative advantages: clauses to secure the production of Star Wars sequels, and ownership of the merchandising and licensing rights to the Star Wars franchise.

20th Century Fox was not concerned with retaining merchandising rights to the film, even if it proved popular and generated one or more sequels. The last time it had tried to make money from film merchandise - with Doctor Doolittle in 1967 - the venture was a miserable failure, and the company was not keen to repeat this exercise. George Lucas, on the other hand, had created the Star Wars universe with merchandising in mind, and had already put considerable thought into the development of product lines and licenses that might sell if the film were to become a hit.

While American Graffiti was a sleeper hit, it didn't take long for Star Wars to become the highest-grossing film in history, a title that it held until the 1982 release of Steven Spielberg's E.T. The Extra-Terrestrial. Just as the film itself was an instant success, it wasn't long before the merchandising side of things turned into a lucrative business.

The first Star Wars film has generated nearly $800,000,000 worldwide, and collectively, the films released as of 2014 have generated a total of $8 billion in box office and DVD sales, but it's the merchandise that is the clear winner: between toys, branded apparel, books, video games, and miscellaneous items, the rights that 20th Century Fox signed away for a few thousand dollars have generated nearly $20 billion since 1977.

George Lucas showed incredible foresight in his strategy which, combined with 20th Century Fox's reticence having been previously stung, has made him a very wealthy man.